VSIt’s a ring made of red leather benches – it’s called the “ring” – that can drive you crazy, make or break fortunes in minutes. Sitting there, a dozen authorized brokers trade tons of copper, tin, lead, zinc, aluminum or nickel in rounds of five minutes. The London Metal Exchange is the last physical financial market in Europe, an anachronism in the age of algorithms.
It is also one of the few to have a global network of physical stocks. Accustomed to heat strokes, he has seen tragedies pass, but that of this Tuesday, March 8 will remain in the annals. In two sessions, the price of nickel exploded by 250%, before the organizers decreed the closure of the market, the time that the spirits calm down.
This time, it is not the war in Ukraine that plays the main role, but a risky speculation. A Chinese investor sold contracts with deferred payment, which is called “short selling”: I sell at today’s price and I will pay later, at tomorrow’s price, because I think it will be lower. A bet on falling prices that allows you to hedge against price fluctuations. But Xiang Guangda this time had a heavy hand and a foggy mind.
Big hit specialist
In the world of commodities, it is called “Big shot”, the specialist in big shots. The company he founded in 1992 in Wenzhou, southern China, has become the world leader in stainless steel and one of the biggest players in nickel, the basic additive of this steel. At the end of 2021, when prices were already very high, he built up positions to hedge, and because he anticipated a drop in prices.
Western sanctions following the invasion of Ukraine dampened its hopes by hitting the world number one in nickel, Russian Norilsk, which sent prices soaring. Faced with the disaster, intermediaries and brokers tried to sell their contracts, causing in return the explosion of prices. The unfortunate billionaire could lose 2 billion dollars (1.83 billion euros) in the case.
Risky speculations and other scandals have punctuated the history of capitalism since its origins. Especially in times like today, when the world suddenly becomes volatile, uncertain, complex and ambiguous. An environment that the American military has baptized with the acronym “VUCA” (“Volatility, uncertainty, complexity and ambiguity”). Xiang Guangda does not have to worry too much, however, because he is also one of the first beneficiaries of the rise in the price of a metal whose use should increase with the development of electric batteries. There are no morals in business, just opportunities.